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Thursday, March 11, 2010

Bootstrapping, Investors...

... & Why Entrepreneurs Should Refine Terms !!!...
by David Bookout

Like moths to a flame, an entrepreneur's chances of real success in a singular venture are slim. Yet, for the most part, they seem perilously attracted to equity financing. Why? It certainly isn't because the model is wildly successful in a general sense. Amongst Angels, VCs and others close to deal making some say that the a new venture's chances for success ( liquidity to shareholders ) are just a mere 1 in 10,000, but that doesn't seem to stop a steady flow of entrepreneurs and new ventures...

Meanwhile, a lively discussion has been taking place over on Sramana Mitra's blog about venture capital ( read as capitalizing your venture ) and why bootstrapping, in particular, is especially critical today for success as an entrepreneur. I should also say that Sramana's views on business building are solid, pragmatic, and refreshingly reinforced in the free Strategy Roundtable discussions that she holds every Thursday morning, where the first 5 entrepreneurs to sign up get to pitch their idea via a Dimdim webinar. More on this later...

This article is an offer to refine the terms bootstrapping and investor and augment the current, broad, and somewhat useless interpretations that can and often do short circuit healthy business growth. Particularly in the start up phase. Sadly, the majority of entrepreneurs still seem intoxicated by the cruel hoax of "getting funded", while ignoring the fact that the days are long gone when cash could be raised on an idea alone.

So, let's take a renewed look at bootstrapping. And, let's take that look while connecting squarely with the essential grounding and proof of concept work that every business and business offer needs to do to become a success. Overnight successes are Hollywood themes, and business magazine fodder that have just plain given people the wrong idea. Many think that bootstrapping is either too painful, or should be considered a form of failure. Instead bootstrapping should be thought of as an essential component of concept testing any new business. The premise being that if people won't pay for a product / service today, there is little chance that an equity based cash injection is going to facilitate payments tomorrow. The sector you're planning to serve doesn't matter. Payment is the only true test of value.

On the investor side, if we also take a renewed look, and move away from the traditional, predominately financial definition of investor, then entrepreneurs are free to adopt a more powerful interpretation that embraces the most precious resource they could receive in launching a new venture. People's time, and commitment. If you have people helping you, they are indeed investing. Investing in you, your idea, and your collective futures. Again, if you, and your investors are unable, or unwilling to ask people to pay for the products and services you're offering, then a big slug of cash isn't going to help.

Additional, and significantly larger, long term benefits of looking at bootstrapping and investors in this renewed way are the cash planning skills, and retained equity positions found amongst the successful owners of Small, Medium Enterprise. Unlike the 9,999 moths that get burned by the flame, the lions share of U.S. GDP comes from the SME sector and entrepreneurs that successfully bootstrap their ventures into those ranks have cause for celebration, as well as the added enjoyment of the improved negotiating power they will have should they so choose.

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